Document Type
Article
Publication Date
4-2023
ISSN
0038-3910
Publisher
University of Southern California Gould School of Law
Language
en-US
Abstract
Inflation is a problem of tremendous scale. But the leading response to inflation-raising interest rates-also poses economic risks. Raising interest rates rapidly may increase unemployment and heighten the chance of recession. This Article argues that there is a better way to think about antiinflation policy. Rather than defaulting to interest rate hikes that harm markets, policymakers should prioritize laws that lower prices while improving markets. Most importantly, there is evidence that businesses have raised prices by colluding with one another, exploiting consumers' behavioral and informational limits, and lobbying for protectionist laws that block competition. Artificial intelligence pricing algorithms and dark pattern online manipulation tools have further enhanced businesses' ability to charge higher prices. Although those preexisting market failures did not cause the high levels of inflation that began in 2021, they create new inflation challenges and opportunities.
A key challenge is that in an era of automated pricing algorithms and market failures, direct solutions to inflation, like the end of the war in Ukraine, may not bring the full level of lowered prices that would be otherwise expected. Fortunately, market failures now also provide an inflation-fighting tool that would not otherwise exist-like a piggy bank of market improvements that the law can break open to offset some portion of inflation. Interest rate hikes would surely still be needed, perhaps to address the bulk of inflation, but avoiding even a small amount of economically harmful rate hikes is still worthwhile. Many of these market improvement opportunities lie in existing administrative agency authority, but considerably more could be done through new legislation, such as a wide-ranging Price Transparency Act. Moreover, these legal reforms are desirable independent of inflation because they would improve efficiency. Thus, policymakers should resist the urge to rely solely on interest rate hikes that destroy wealth and should instead simultaneously pursue legal rules that promote prosperity. Doing so could even transform a grave crisis into a tremendous economic opportunity
Recommended Citation
Rory Van Loo,
Inflation, Market Failures, and Algorithms
,
in
96
Southern California Law Review
825
(2023).
Available at:
https://scholarship.law.bu.edu/faculty_scholarship/3333
Included in
Banking and Finance Law Commons, Business Organizations Law Commons, Law and Economics Commons
Comments
Update with published article on 9/10/2024.
Draft available as additional file